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Big private money for small projects -- International fund launched

The first global private equity fund exclusively for renewables and energy efficiency is not only up and running, it appears to be off to an electrifying start. The Renewable Energy and Energy Efficiency Fund (REEF), announced on March 24 by its lead investor the International Finance Corporation (IFC), has so far raised $65 million. The money is for investing in sustainable, clean energy projects in developing countries over the next five years. The fund's initial target was $50 million.

Projects are already being considered for REEF investment. Wind is among those being reviewed. The launching of the fund comes as concern about global warming continues, as more international aid agencies are targeting environmentally friendly projects, and as a market in emissions trading is developing. The Washington based IFC, the lead investor and pioneer of the fund, is the private sector affiliate of the World Bank Group. Its mission is to promote private sector investment in the developing world.

Fully commercial

REEF, which is backed by various private as well as public sector groups, can invest a total of up to $100 million in grid-connected and off-grid energy projects. Fund raising will continue for the rest of the year. Appropriate technologies are expected to include wind, small hydro, geothermal, biomass and cogeneration.

The fund will also invest in energy efficiency projects and companies. REEF's investment would normally be as a minority investor in projects. The majority of the REEF's investment are expected to be fully commercial in nature. REEF will also have access to a parallel discretionary debt facility of up to $100 million which will be co-managed by IFC and Dresdner Kleinwort Benson.

The total capital cost of a project eligible for funding must be less than $100 million. Indeed smaller projects of less than 7 MW will specifically be targeted. When appropriate, funding from the Global Environment Facility (GEF), the official financing mechanism of the UN Framework Convention on Climate Change, will be used for smaller or less profitable private projects that would not otherwise be considered or which would not be commercially feasible without support. A feasibility study financed by IFC and several of its shareholders, including the governments of France, Germany, the Netherlands, Norway, and the United States, has estimated the potential market for such projects to be at least $2 billion over the next five years.

"We think it important that there is a fund specifically for renewables and energy efficiency," says Dana Younger, GEF co-ordinator at the IFC. The fund will be looking for both geographic diversity as well as a range of energy technologies in its awards.

International investors

Other investors in the fund include Alliant Energy Renewable Resources Ltd, a US utility; Deutsche Investitions und Entwicklungsgesellschaft, a German government owned private investment entity; the Finnish Fund for Industrial Co-operation Ltd, a Finnish government owned private investment entity; John Hancock Life Insurance Company, a US mutual life insurance firm; NUON International Renewables, a Dutch utility offshoot; and Vlaamse Milieuholding NV, a Flemish government owned private investment entity. The fund will be advised by the EIF Group of the US with help from the Environmental Enterprises Assistance Fund and Energy House Capital Corporation.

REEF's discretionary debt facility of up to $100 million consists of an IFC A-loan, or senior loan, of up to $20 million as well as up to $80 million in B-loans, or syndicated loans. Dresdner Kleinwort Benson will co-arrange the syndication of the B-loans and will manage the debt facility along with IFC.

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